Nebius (NBIS.US) surged 514% in Q2: Why is Morgan Stanley (MS.US) maintaining a target price of $144?

According to Woofun AI, Nebius (NBIS.US) showed impressive growth momentum in the second quarter of 2026, and its AICloud revenue soared 514% year over year. The explosive growth of this core indicator directly triggered a re-examination by Wall Street.

Despite its impressive performance, Morgan Stanley (MS.US) did not raise its target price after the earnings report was released, but instead maintained an Equal-Weight rating and a target price of $144. Behind this seemingly conservative response, deep considerations about infrastructure's ability to deliver are hidden.

Judging from the financial structure, Nebius' growth is almost entirely driven by the AI cloud business. Total revenue for the quarter reached US$582.3 million, up 454% year over year, of which AICloud revenue was about US$575 million, accounting for about 99% of total revenue.

A more critical indicator is annualized recurring revenue (ARR), which climbed to $3 billion at the end of the quarter, up about 56% from $1.92 billion at the end of the first quarter. The improvement in order quality was also significant. Nebius signed 4 iconic deals in the second quarter. The contract period was spread over 1 to 3 years, and the average transaction size exceeded 1 billion US dollars. The annualized contract value of the newly signed transactions exceeded 20 million US dollars/MW, while the annualized contract value of some short-term transactions in the third quarter exceeded 40 million US dollars/MW. The total value of new contracts signed was about 4 times that of the previous quarter, and the total value of new customer contracts increased more than 9 times. The efficiency of fund recovery has been greatly improved, and the expected payback period will be shortened to about 1 year and 10 months, far faster than the previous 2 to 3 years. These changes show that although most of the new contracts will be launched in late 2026, contributing only to that year's revenue, the high unit price and short cycle have effectively relieved the pressure on upfront capital expenditure and laid a solid foundation for subsequent growth.

The adjustment of production capacity expansion targets is another major focus. Nebius raised the target of contracted power capacity from over 4 GW to 5 GW by the end of 2026, and plans to deploy more than 1 GW of active power every year starting in 2027.

This ambitious plan means active power will surge from 170 MW in 2025 to 780 MW in 2026, 1,680 MW in 2027, and 2,620 MW in 2028. Based on this, Morgan Stanley raised its forward financial forecast. FY27 revenue is expected to reach US$10.926 billion and FY28 revenue to reach US$19.059 billion; the adjusted EBITDA forecast was raised to US$6.294 billion and US$12.108 billion, respectively.

However, contracted power capacity is not equivalent to instant computing power. From locking in electricity to actual revenue generation, the middle involves many complicated steps such as site approval, power access, GPU procurement, and engineering construction. Delays in any process may affect the final revenue delivery.

High capital expenditure is the price necessary to support this expansion. According to data compiled by WooFunai, Morgan Stanley expects NebiusFY27 capital expenditure to reach 36.980 billion US dollars and FY28 capital expenditure to reach 41.06 billion US dollars, up 19.0% and 13.5% respectively from previous forecasts. The second-quarter data already reflects this capital intensity: the adjusted EBITDA for the quarter was US$236.2 million, profit margin reached 40.6%, operating cash flow was US$2,246.1 billion, but expenses on the purchase of property, equipment and intangible assets reached US$5.657 billion.

Despite significant operating cash flow, construction expenses far exceed operating income. Notably, there was a premium in Blackwell's computing power pricing. The initial volume auction price was 15% higher than the previous highest price, and the short-term capacity transaction annualized contract value exceeded 40 million US dollars/MW. This reflects the current tight supply and demand situation in the AI computing power market. Customers are willing to pay a higher price for ready-to-use computing power, but there are still doubts about whether this premium can be maintained for a long time, and high capital expenditure poses a serious challenge to financing capacity.

Potential risk factors mainly focus on customer concentration and competitive landscape. While high-value contracts increase revenue visibility, they also make the company more dependent on the deployment pace and renewal decisions of a small number of customers. Competitors such as CoreWeave, Microsoft (MSFT.US), Amazon (AMZN.US), and Google (GOOGL.US) are all speeding up the deployment of AI infrastructure. Among them, Microsoft (MSFT.US), Amazon (AMZN.US), and Google (GOOGL.US) have significant advantages in terms of capital, customer ecology, and GPU procurement. Take the 300MW New Jersey Vineland project as an example. Although management is optimistic about the approval process, the project still needs to complete public hearings, local approval, electricity access, and project construction. Until it is officially put into operation, this part of the capacity cannot be considered realized.

Furthermore, Nebius needs to supplement capital through asset-backed financing, corporate debt, or equity-linked instruments. The level of financing costs will directly affect shareholder returns and equity dilution pressure. Once GPU supply becomes loose, short-term price premiums may be compressed, which in turn affects profit performance.

The logic behind Morgan Stanley's maintenance of the Equal-Weight rating and target price of $144 is that the current market fully reflects expectations of strong demand, and greater uncertainty comes from capacity delivery capacity. The difference in scenario valuations is huge: the target price for a bull market is $400, the valuation range for the benchmark scenario is $130 to $300, and the target price for a bear market is $70. Under a bull market scenario, Nebius needs to launch more than 5 GW of power capacity by 2030 to expand its customer base and increase profit margins through software services; under a bear market scenario, the balance between GPU supply and demand, increased competition, and delivery delays will lead to lower premiums. The key variables that determine the final direction are financing costs, approval and construction progress, and competitive trends. Nebius proved in the second quarter that it is capable of obtaining large contracts at high prices, but achieving the 5GW target depends not only on order acquisition, but also on whether it can be built on time and converted into cash flow. This is a core risk that is not fully priced in the current valuation.